United States

Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015

The Department of Finance has published the "Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015" (the Bill). This legislation follows the publication of a consultation paper last July 2014.

The primary purpose of the legislation is to provide for the protection of borrowers whose loans are sold by a regulated entity to an unregulated entity by ensuring that all regulatory protections (such as the Code of Conduct on Mortgage Arrears and the Consumer Protection Code) continue to be available to such borrowers. Unregulated entities are currently not bound by Central Bank Codes.

Two key amendments of the Central Bank Act 1997 as provided for in the Bill are as follows:

The insertion of new "credit servicing" provisions to the effect that any person engaged in credit servicing activities i.e. managing or administering a credit agreement, will be required to be regulated by the Central Bank or if providing such services on a cross-border basis, that they are authorised to do so in their home State.

"Credit servicing" may not however include activities such as the determination of a strategy for the management and administration of a portfolio of credit agreements or decisions in connection with such a portfolio; taking steps to enforce a credit agreement or taking steps to enable the undertaking of credit servicing by another person in so far as such activities do not breach financial services legislation/Codes of Conduct.

An amendment to narrow one of the exemptions to the definition of "retail credit firm" i,e, "retail credit firm" does not include a person who is a regulated financial services provider authorised by the Bank or an authority that performs functions in an EEA country that are comparable to the functions performed by the Bank, to provide credit in the State…". [amendment in italics].

The effect of this amendment may be to bring regulated financial services providers who either are or wish to provide credit in the State to relevant persons, within the ambit of regulation as a "retail credit firm".

The Bill also provides for transitional arrangements for existing retail credit firms and credit servicing firms. Such firms will be deemed to be authorised to carry on its business until the Central Bank grants or refuses authorisation provided that such firms apply to the Central Bank for authorisation not later than 3 months after the coming into operation of the legislation.

The introduction of the legislation is to be welcomed. However, while the legislation has not yet been enacted, as currently drafted, it may have far reaching implications for both servicers of loans and lenders in Ireland.